Mustard harvest shortfall turns the heat on cooking oil

Nidhi Nath Srinivas, TNNFeb 26, 2008, 04.02am IST

NEW DELHI: The wildfire in cooking oil prices is being further fanned by a decline in the harvest of mustard, India's most important local oilseed.

A good mustard crop insulates the country from the spikes in global vegetable oil prices. But there may be an over one-million-tonne drop in the mustard crop this year as frost damage and poor soil moisture pull down yields in parts of Rajasthan and Haryana.

Mustard oil is selling at Rs 67 per kg, a 25% jump over last February's prices. Groundnut oil has crossed Rs 120 per kg, or close to 30% more expensive than last year.

As mustard seed prices climb higher, consumers will be forced pay at least Rs 3 per kg more for the same kachchi ghani oil in the coming months. That will simultaneously push up the price of imported oils such as palm and soya. Usually, domestic oils such as mustard and groundnut help keep the lid on overall cooking oil prices.

Faced with this looming crisis, India may have no option but to bring the duty on sunflower oil to zero to boost availability of vegetable oil. The effective duties on imported crude palm and soya oils are already below 20%. Nafed, which buys mustard seed on behalf of the government, is estimated to have not more than 1 lakh tonnes seed in stock.

Trade circles are pegging the crop at 4.8-5 million tonnes, down from 6.1 million tonnes last year. "The figure is a combination of 10% lower acreage and yield damage due to frost and lack of rains," said KS Oils managing director Ramesh Garg. KS Oils is a large player in mustard oil.

The maximum damage due to frost is in Hanumangarh, Ganganagar, Kota, Jhalawar and Patan areas of Rajasthan, and Rewari and Bhiwadi in Haryana.

"Last year, yield was around 1,026 kg per hectare. This year, we are expecting it to be around 825 kg per hectare due to moisture stress and frost damage," said a trader with a MNC agribusiness company here.

In Rajasthan, the harvest has started coming into Kota and Jaipur mandis. "Mills have started paying farmers Rs 30 per kg for seed, which is Rs 15 more than the MSP," said Jaipur-based Shree Fats & Proteins managing director Gopal Goenka. At this price, the cost of mustard oil would be Rs 70 per kg, he added.

But these prices come as no comfort to the industry. There is a lot of uncertainty over crushing mustard seed.

"Everyone will buy seed, but whether or not we make profits is not certain. Right now, the crush margin is negative because oil prices are lower than the cost of seed," said Mr Goenka.

The biggest apprehension is that the government may intervene either through duty cuts or other price control measures. "If there is no government move to bring down mustard oil prices, and the global markets continue to rise, the business will be viable. Otherwise, crushing will become unprofitable," Mr Garg added.